The Standards for Evaluating Stablecoins

VNST

2024-02-26

In the evolving world of cryptocurrencies, owning a reliable stablecoin is extremely crucial. However, not all stablecoins are created equal. To ensure stability and safety for users, VNST has established strict and transparent standards for evaluating various types of stablecoins.

Why Establish Stablecoin Evaluation Standards

Currently, the cryptocurrency market is witnessing the emergence of many types of stablecoins with diversity in protocols and operational mechanisms. These are digital currencies designed to maintain stable value, often pegged to a fiat currency such as the US dollar (USD) to ensure consistency and ease of transaction.

However, it's not just the protocol and mechanism that are important; it's also how the protocol operates in practice. We have seen many projects with complete theoretical concepts and algorithms about the protocol, yet encountering uncontrollable risks during deployment, such as the case of the UST stablecoin. This underscores the importance of evaluation not only of the protocol but also of how the protocol operates in reality to ensure stability and reliability for users.

VNST's Stablecoin Evaluation Standards

We have built specific, clear, and objective standards for comprehensive evaluation from theory to operational methods before authorizing stablecoins to become VNST-backed assets.

These standards are divided into four main categories to ensure transparency and reliability:

  • Financial
  • Management
  • Security
  • Legal

In each category, we conduct detailed evaluations of aspects such as collateral assets, collateral ratios, issuer governance, security auditing, and legal compliance. This helps us ensure that every stablecoin calculated and selected meets our stringent and trustworthy standards.

Financial

In the financial domain, we are concerned with evaluating collateral assets, including both on-chain and off-chain, as well as collateral ratios and the quality of these assets. The issuance and redemption process of stablecoins are also emphasized to ensure maximum stability and minimum value fluctuation. Additionally, regarding liquidity, we assess the relative and sustainable nature of stablecoins during periods of volatility. Longevity and market history are also critical factors, considering supply sources, operating time, and past fluctuations to assess reliability and security.

Management

Management in digital financial systems plays a crucial role in determining the reliability and stability of stablecoins. VNST has set clear and transparent standards for management in digital financial systems, including aspects such as transparency, authority and procedures, governance locks, and risk management. Ensuring transparency and risk management is key, creating a trustworthy and safe environment for users and stakeholders.

Security

Engaging in the audit and auditing process in the system is an important step in reducing security risks for stablecoins, although it cannot be fully guaranteed. Identifying the audit companies involved and the timing of the audits is crucial, as well as identifying the source code and reuse rate from previously proven protocols. Additionally, having Bug Bounty programs plays an important role in identifying potential vulnerabilities and encouraging community participation in improving the security of the system.

VNST is particularly concerned with stringent legal considerations for stablecoins. This includes ensuring compliance with regulations and laws, while also assessing stability against sanctions and actions from the government. We also consider the project's degree of decentralization, auditability, and asset freezing, as well as the level of privacy protection and legal history of the project in the past.

Detailed information on VNST's Stablecoin Evaluation Standards can be found here.

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